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Japan’s latest 30-year JGB auction cleared at 3.447%, up from 3.427% previously, indicating investors demanded a slightly higher yield to absorb long-end supply. The small rise is consistent with ongoing term-premium pressure as markets price a gradual BOJ normalization path and heavier long-duration supply sensitivity.

Market impact: Mildly negative for long-end JGB prices and potentially supportive for JPY at the margin via higher long-term yields, though FX impact is usually limited unless the move broadens across the curve or shifts BOJ expectations.

Weekly flow data showed a sharp swing in foreign positioning across Japan’s markets. Foreign investors were net sellers of Japanese bonds by ¥223.6B, reversing the prior week’s +¥82.6B net buying—consistent with ongoing sensitivity to higher JGB yields and BOJ-normalization pricing. At the same time, foreigners turned net buyers of Japanese stocks by ¥124.9B, a major improvement from the prior ¥1,234.8B outflow, suggesting renewed equity appetite—potentially linked to the tech/semiconductor bid and Japan’s improving earnings narrative.

Market impact: Equities-positive at the margin for Japan (supportive for Nikkei/TOPIX), while bond outflows can keep upward pressure on yields and lend mild support to JPY via rate differentials—though FX direction will still hinge on BOJ policy expectations and global risk sentiment.

Japan’s wage indicators softened materially in November. Overall wage income rose just 0.5% y/y (2.3% expected, 2.5% prior), a large downside miss that suggests household income momentum cooled more than markets anticipated. Overtime pay growth also slowed to 1.2% y/y (prior 2.1%), reinforcing the message that labor-income strength may be less consistent at the margin—an important signal for a BOJ that is watching whether wages and prices rise together in a durable cycle.

Market impact: Mildly supportive for JGBs and slightly JPY-negative at the margin—slower wage growth can temper expectations for aggressive BOJ tightening, though policy will still hinge on broader wage-settlement trends and underlying inflation persistence.

Japan’s December PMIs signaled a softer growth pulse into year-end, driven by cooling services, while overall activity remained expansionary. The au Jibun Bank Services PMI fell to 51.6 (52.5 expected, 53.2 prior), missing forecasts and indicating slower momentum in the sector that has been carrying domestic growth. The broader Manufacturing & Services (Composite) PMI came in at 51.1 (prior 52.0), still above 50 but consistent with a modest deceleration in overall business activity.

Market impact: Slightly supportive for JGBs and mildly JPY-negative at the margin—softer services momentum can temper near-term growth expectations, though BOJ pricing will still hinge more on wages/inflation dynamics and policy guidance than a single PMI set.

Japan’s latest 10-year JGB auction cleared at 2.095%, up from 1.872% at the prior auction, underscoring a notable repricing higher in the long end of the curve as investors demand more yield in a BOJ-normalisation environment. The higher stop-out rate reinforces that duration is being absorbed at meaningfully higher levels, consistent with markets keeping tighter policy expectations and term premia elevated into early 2026.

Market impact: Supports higher JGB yields and can be JPY-supportive at the margin via widening Japan-rate momentum; however, USD/JPY remains primarily driven by U.S.–Japan rate differentials and global risk tone.

Japan’s monetary base continued to contract sharply in December, underscoring the BOJ’s ongoing pullback from ultra-loose policy. The monetary base fell -9.8% y/y (-8.0% expected, -8.7% prior), a larger-than-forecast decline that suggests liquidity is being withdrawn faster than markets anticipated. The print is consistent with reduced JGB purchases and the BOJ’s broader normalisation trajectory as it steps away from the decade-long stimulus framework.

Market impact: Mildly supportive for JPY and higher JGB yields over time—faster base shrinkage reinforces the tightening/normalisation narrative. Near term, the key driver for USD/JPY remains the U.S.–Japan rate differential, but sustained liquidity withdrawal can amplify rate volatility and keep Japan rates in focus.

Japan’s average monetary base fell 4.9% y/y in 2025, the first annual decline in 18 years, reflecting the Bank of Japan’s continued exit from ultra-loose policy after ending its long stimulus era in March 2024. In December, the monetary base dropped 9.8% y/y to ¥594.19tn, slipping below ¥600tn for the first time since September 2020—consistent with reduced JGB buying and the termination of lending-incentive funding schemes as policy normalisation proceeds.

Market impact: Mildly supportive for JPY and higher JGB yields over time—shrinking base liquidity reinforces the “normalisation” narrative. Near-term, the signal is more about liquidity withdrawal than growth, and market sensitivity will remain highest around BOJ guidance and inflation/wage follow-through.

China’s Caixin Services PMI came in at 52.0 in December (52.0 expected, 52.1 prior), matching consensus and only marginally below the prior month. The reading stays comfortably above 50, indicating service activity continued to expand into year-end, but the flat profile suggests momentum is stable rather than improving. With Beijing leaning on consumption support measures, markets will watch whether new business and employment components firm in early 2026 to validate a more durable domestic-demand recovery.

Market impact: Largely neutral for CNY—an in-line services print reduces near-term surprise risk, while the still-expansionary level supports sentiment at the margin. FX direction remains more sensitive to policy guidance, PBoC fixing signals, and broad risk appetite than to a steady PMI print.

Japan’s au Jibun Bank Manufacturing PMI rose to 50.0 in December (49.7 expected, 48.7 prior), improving notably and returning to the expansion threshold. While a 50.0 print effectively signals stabilization rather than clear growth, the upside surprise suggests factory conditions stopped deteriorating into year-end—an encouraging counterpoint to recent softness, even as tighter financial conditions and BOJ normalization remain a key macro constraint.

Market impact: Mildly supportive for JPY and Japan risk sentiment at the margin—an improving PMI can reinforce “soft-landing” expectations, but the flat-at-50 signal is unlikely to shift BOJ pricing on its own; FX remains sensitive to yield differentials and BOJ guidance.

Speaking to Japan’s banking sector lobby on Monday (Jan. 5, 2026), Finance Minister Satsuki Katayama said Japan is at a critical juncture in shifting from a deflation-mired economy to a more growth-driven one. The remark aligns with the broader policy narrative that a firmer wage–price cycle and a gradual recalibration of monetary support can underpin more sustainable growth—signaling government comfort with the ongoing transition away from ultra-loose settings.

Market impact: Mildly supportive for JPY and higher JGB yields—it reduces perceived political friction around BOJ normalization. Near-term FX and rates remain sensitive to inflation/wage data and any renewed volatility in USD/JPY.

Bank of Japan Governor Kazuo Ueda said on Monday (Jan. 5) the BOJ will continue raising interest rates if economic activity and inflation evolve in line with its forecasts, arguing Japan is progressing toward a more sustainable wage–price dynamic. Ueda said the economy maintained a moderate recovery in 2025 despite profit headwinds from higher U.S. tariffs, and reiterated that wages and prices are likely to rise “moderately” together. The BOJ lifted the policy rate to a 30-year high of 0.75% from 0.5% last month, reinforcing its shift away from ultra-loose policy, with markets now focused on the BOJ’s updated outlook at the Jan. 22–23 meeting.

Market impact: Mildly supportive for JPY and a tailwind for higher JGB yields as “more hikes” messaging reinforces tightening expectations; Japanese equities may see a more mixed impulse (yen strength can weigh on exporters) while global risk sentiment remains sensitive to BOJ path clarity and U.S. rate dynamics.

Japan’s equity market is closing the year with strong performance, with the Nikkei 225 on track to rise more than 26%. South Korea’s KOSPI has delivered an even more dramatic rally, surging over 75% amid strong gains in technology and export-linked stocks, underscoring Asia’s standout equity performance in 2025.

Market impact: Strong equity momentum in Japan and South Korea supports regional risk sentiment, though valuations and profit-taking risks rise after such outsized annual gains.